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Tether Taps Chainalysis For USDT Surveillance Bringing Stablecoin Issuer in Line With Circle and Paxos

Last Updated May 3, 2024 11:06 AM
James Morales
Last Updated May 3, 2024 11:06 AM
By James Morales
Verified by Peter Henn

Key Takeaways

  • Tether is employing a new stablecoin monitoring solution developed by Chainalysis.
  • The platform will give Tether greater oversight of USDT transactions and could help it appease regulators.
  • Chainalysis provides similar services for Circle and Paxos.

Tether has traditionally stood out among the largest stablecoin issuers. It forged its own path outside of US jurisdiction, making more than a few enemies in Washington in the process. 

But now, in pursuit of regulatory compliance, the Cayman Islands-based firm is implementing a new transaction monitoring system. Chainalysis, which also provides solutions to fellow stablecoin issuers Circle and Paxos, is putting the platform in place. 

Chainalysis Powers Compliance for Over 90% of All Stablecoins

According to Tether’s announcement, Chainalysis will provide secondary market monitoring tools to help screen USDT transactions for signs of illicit activity. 

These include Sanctions Monitoring, which provides a detailed list of addresses and transactions involving sanctioned entities, and an Illicit Transfers Detector which can identify transactions potentially associated with categories like terrorist financing. 

The latest announcement means that Chainalysis now provides compliance solutions to three of the world’s largest stablecoin issuers.  Between them, they account for more than 90% of the entire market. 

This brings Tether in line with Circle and Paxos, helping to close a gap that has often put the firm at odds with Washington.

Tether and US Regulation

Although it is the world’s largest issuer of digital dollars, to an extent, Tether’s offshore base has helped it circumvent US regulatory oversight.

The firm has been frequently cited by Washington lawmakers calling for greater oversight of the crypto sector.

Criticism reached a climax last year following reports that stablecoins were used to raise funds for Hamas in violation of international sanctions. While there are serious doubts over the veracity of these claims, they continue to frame Tether’s recent actions.

While Senator Elizabeth Warren and her crypto-skeptic allies have tended to lump all stablecoin issuers together, Tether’s offshore status singles it out from Circle and Paxos. 

Even pro-crypto lawmakers like Cynthia Lumis and Kristen Gillibrand have taken a harder line in recent months, as demonstrated by their proposed stablecoin bill.

The Lummis-Gillibrand bill would create a regulatory framework for stablecoins issued by US entities. It could, therefore, discourage companies from using USDT, which wouldn’t be licensed under the proposed regime. 

Stablecoin Rules Threaten USDT Dominance

While Tether’s latest efforts to increase compliance can be viewed as an attempt to sure up its market dominance in the face of mounting regulatory scrutiny, it still might not be enough.

With more and more governments eying stablecoin regulation, Tether’s offshore model looks increasingly unsustainable.

Under the EU’s Markets in Crypto Assets (MiCA) regulation, for example, an appropriate European authority must license stablecoin issuers. 

Ahead of the new rules coming into force, Circle has already received a conditional registration  in France. However, Tether remains outside of the new licensing regime.

In a worrying sign for the company, last month, OKX delisted USDT in the EU. Many observers read the move as a precautionary measure intended to protect the exchange from liability if Tether is deemed to be providing financial services without a license.

For now, USDT remains the traders’ favorite. But unless Tether starts playing by the rules it could lose its lead.

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